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WHY TITLE INSURANCE:

 

What Every Home Buyer Should Know About Title Insurance

Most home buyers have been informed that obtaining title insurance will provide them necessary protection over possible title defects; but many remain uncertain about why this is so, or even about what title insurance is. At FNF, we believe we have everything to gain by throwing some light on the subject. The more you know about title insurance and its pricing, the more confident you'll be about coming to us for a policy.

A Buyer’s Concern: How Much Does it Cost?

A title insurance policy from Ticor is much more cost-effective than the other kinds of insurance you have had to purchase. For a single, one-time-only fee, we provide a title policy that remains effective until the property is sold to a new owner even if that doesn't occur for decades. Ticor’s price structure is among the lowest, especially for enhanced coverage, giving you the most respected name in title insurance at highly competitive rates.

Why the Buyer Needs Title Insurance

”Buyer Beware” has been the watchword since colonial times. Any prospective buyer wants evidence that the purchase is free of title defects. The title insurance policy that you buy is a guarantee that you have clear title to your real estate, unencumbered by any legal attachments that might limit or jeopardize ownership. Without a title insurance policy, you may not be fully protected against errors in public records, hidden defects not disclosed by the public records, or mistakes in examination of the title of your new property. As a result, you may be held fully accountable for any prior liens, judgments or claims brought against your new property. However, your policy insures that if such an occasion arises, you will be defended free of charge against all covered claims and paid up to the amount of the policy to settle valid claims. The Ticor name carries special authority: it reassures you that your title is backed by the strongest company in the industry. In addition, it can help your deal close more quickly and easily.


What's in a Title Search?

You've decided to purchase a home and hope to take possession as soon as possible. The terms have been agreed upon and all the financial arrangements have been made. But there's one important detail remaining. Before the transaction can close, a title search must be made.

The most accurate description of title is a bundle of rights in real property. A title search is the process of determining from the public record just what these rights are and who owns them.

A title search is a means of determining that the person who is selling the property really has the right to sell it, and that the buyer is getting all the rights to the property (title) that he or she is paying for.

In those transactions where title insurance is involved, the title insurance company must determine insurability of the title. This leads to the issuance of a title policy, which insures the existence or non-existence of rights to the property, and covers many possible problems, like forgery, that the title search cannot disclose.

The title insurance company will, at its own expense, defend the title and will pay losses within the coverage of the policy if they occur. This defense and coverage applies even to the most ancient title defects, which may elude the title searcher simply because they arose well before a reasonable search starting date.

But what exactly, is involved in a title search? Ticor provides the following step-by-step review:

Chain of Title

This is simply a history of the ownership of a particular piece of property, telling who bought it and sold it, and when. The information is derived from public records in the County Registries of Deeds and Registries of Probate. Court records, too, are often needed. Maine has 18 Registries of Deeds, serving 16 counties.

Tax Search

This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or whether any taxes are past due and unpaid from previous years. In addition, the tax search will indicate the existence of any special assessments against the land and, if so, whether or not these assessments are current or past due. Searchers must often consult records other than the municipal records. There may be a separate sewer district, or even a water utility with authority to lien the property. Condominium fees, road maintenance agreements, and other private agreement payments must also be checked.

A due and unpaid tax or special assessment is a prior lien or claim on the property above all others. If a buyer purchases property with unpaid and past due taxes or assessments against it, he or she is likely to find a government body or private association placing the property up for sale to pay those taxes or assessments. Title insurance protects the buyer against loss from unpaid and past due taxes and assessments.

Survey Questions

Many lenders seek a way to verify the lot size, check the location of improvements, look for evidence of easements that are not shown of record and check on other signs of occupation. In Maine, this task is given to surveyors who perform an inspection and prepare a “mortgage inspection sketch.” The purpose of this is to supplement the information learned from the title search.

In the eyes of the law, any buyer of real estate is assumed to have notice of all matters properly shown in the public records as to that real estate as well as any information that an actual inspection may reveal. The mortgage loan inspection is not thorough enough for these Buyer’s purposes. So for the would-be homeowner, a full survey should be considered.

If the surveyor detects an unrecorded easement or other evidence of outstanding rights that could affect the owner's title and possibly the value and intended use, the buyer will know before he or she closes the purchase. Those matters must then either be disposed of or shown as exceptions in the title insurance policy. If no survey is done, the Buyer’s title insurance policy will not provide coverage against matters which could have been discovered by an accurate survey and inspection of the premises, unless these matters appear in the registry of records.

Judgment and Name Search

One of the most important parts of the title search is to determine if there are any unsatisfied judgments against the seller or previous owners which were in existence while they owned the title. A judgment is a general lien against the debtor's real estate and constitutes security for any money owed under the judgment. The real estate can be sold to satisfy the judgment.

It is extremely important to be sure that a title is not subject to judgments against the seller or previous owners. Title insurance provides this protection. A judgment against a person named Smith may affect the title of a seller named Smith, depending on whether or not they are the same person. So all possible variations of the name must be examined.

For example, the name Smith might be spelled Schmidt, Schmid, Schmidtt, Schmidz, Schmied, Schmiedt, Smid, Smythe, and so on. Maine’s rich Franco-American tradition results in many name translations. For example, Boisvert may be listed as Greenwood in a judgment or lien. The name Nichols can be spelled 73 different ways, from Nachols to Nychals. The task is to determine which of these applies to the owner in question. First names have to be checked, too. There are 25 foreign forms of John, including Johann, Jehan, Hans, Shaun, Gudi, and Efom.

Rights established by judgment decrees, unpaid federal income taxes, and mechanic's liens all may be prior claims on the property, ahead of the buyer's or lender's rights. If a judgment is discovered that constitutes a defect in the title, it is pointed out, and the seller must then eliminate it before the title of the new buyer can be insured free and clear of that judgment.

Commitment

Once the title search is complete, the title insurance company issues a commitment to insure, stating the conditions under which it will insure the title. The buyer and seller and the mortgage lender can proceed with the closing of the transaction after clearing up any defects in the title which may have been uncovered by the search and examination.

The mortgage lender is as concerned as the buyer about the quality of the title because the property is to be security for the new mortgage loan. The mortgage lender requires assurance that it has a valid first (or another acceptable priority) mortgage lien on the property. This is not only common sense, but generally is a legal requirement of regulated mortgage lenders.

The lender's title insurance, however, doesn't protect the new buyer of the property. Although the land is the same, the interest of the buyer and the interest of the lender are very different. The provisions of a lender's title insurance policy are very different from those of a buyer's policy, so the buyer should obtain his own policy, often issued simultaneously with the lender's policy.

Title Companies and Title Insurance Companies

One final note on a common misunderstanding. A title company is not a title insurance company. Title insurance companies, like Ticor, provide the financial strength to pay claims, and provide the actual title insurance policy forms. Title companies are local, and often locally-owned, service companies that conduct the title, tax and judgment searches described in this section. They usually conduct the closing of the transaction, as well. Most title companies are also agents for one or more title insurance companies. When a title company has a question about whether or not to issue a particular type of title insurance policy coverage, the title company will consult with the title insurance company for the final decision.



Why Title Insurance Is Needed When Refinancing a Mortgage Loan

Today's lower interest rates have spurred you to refinance your mortgage. Now you can expect to reap the benefits of substantially reduced monthly mortgage payments, but you can also expect to pay the lender the typical closing costs associated with any mortgage loan.

Why? Because from the lender's standpoint, a refinanced loan is no different than any other mortgage loan. So be prepared for service fees or points and other expenses including a new charge for title insurance.

Title Insurance is Important When Refinancing

Why do you need to buy title insurance again even though you purchased a policy when you first bought your home and there is no change in ownership?

It's because a separate policy is needed by the lender insuring the validity of your mortgage when it is made.

For as long as you own the property your mortgage is valid, but it doesn't insure the new mortgage created when you refinance, and it doesn't provide protection against events that may have transpired between the time you purchased the property and when it is refinanced.

For example, you may have taken out a second mortgage on the home that could threaten the priority of the new lender's mortgage. Or, there could be legal judgments against you or a mechanic's lien against the property by a supplier who wasn't paid for home improvements.

Lenders also insist on a new title policy because many mortgages are packaged as securities and sold to investors in the secondary mortgage market. Title insurance is the only practical way to provide the assurance investors demand and to ensure that the mortgages backing these securities are valid and enforceable.

For your refinance transaction with Title, you may qualify for a special title insurance rate based on the loan amount. There may be additional charges for recording fees, closing fees and endorsements. Your lender, title insurance agent, or our Portland office (866-457-4118) can provide you with an estimate of these costs.

How to Prepare for Your Refinance Closing

Once you have made the decision to refinance your home, you'll want your transaction to progress as smoothly and efficiently as possible. In an effort to avoid potential problems and delays, consider the following points. Check with your real estate agent to determine which ones apply to you.

  • Bring a Cashier's or Certified check to the closing for the amounts you must pay, not a personal check.
  • Bring an original Homeowners Insurance Policy to the closing, along with a paid receipt for the first year's premium. If you're refinancing a condo, bring a Certificate of Insurance instead. A Certificate of Insurance can be obtained from your condo association or property management company.
  • Before the closing, contact your lender regarding any additional requirements that must be satisfied PRIOR to closing.
  • Bring personal identification that includes your picture and signature to the closing.
  • If you have an existing mortgage(s), a current pay off letter(s) must be presented at closing. Contact your lender for instructions on how to obtain a current pay off statement(s).
  • If you are going to be paying off credit card balances at the closing, the most current statements must be brought to the closing.
  • If your property is a condo, bring an assessment letter from your condo association or property management company to the closing.
  • If your transaction requires a Notice of Right to Cancel, disbursement may be delayed until the fourth day following the day of the closing.
Most closers and title insurance agents will very much appreciate your sending or bringing these items to them as many days before the actual closing as possible.

Common Questions Regarding Owner's Title Insurance

Q: Why do I need an Owner's Policy if the title company or attorney did the work properly?

A: Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search. Many defects in title are "hidden". These hidden issues include:
  • Forged deeds, releases or wills
  • Undisclosed or missing heirs
  • Instruments executed under invalid or expired power of attorney
  • Mistakes in recording legal documents
  • Recording errors
  • Improperly reported property taxes
  • Misinterpretations of wills
  • Deeds by persons of unsound mind
  • Deeds by minors
  • Deeds by persons supposedly single, but in fact married
  • Liens for unpaid estate, inheritance, income or gift taxes
  • Fraud
Title insurance will pay for defending against any lawsuit attacking the title as insured, and will either clear up title problems or pay the insured's losses. For a one-time premium, an owner's title insurance policy remains in effect as long as the insured, or the insured's heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner's title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.

Q: Why do I need an Owner's Policy? Doesn't the Loan Policy payoff the loan if there is a title problem, leaving me with the property free and clear?

A: If your lender sustains a loss, the Loan Policy protects only the lender. You, as an uninsured property owner, are left to continue making mortgage payments and you're being sued. Win, lose or draw you must pay the legal fees. If you do lose, you could also face expensive court and settlement fees. In an extreme case, you could lose your property and any equity you might have.

As an example, assume real estate was purchased for $100,000. A down payment of $20,000 is made, and a lender holds an $80,000 mortgage lien, or beneficial interest. The lender acquires title insurance protecting the lender's interest up to $80,000. But the purchaser's down payment of $20,000 is not covered.

What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title.

The title insurance company pays the lender's loss and is entitled to take an assignment of the borrower's debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property. And the balance on the note is still due!

Q: Why waste a few extra hundred dollars when title problems rarely occur?

A: This is your investment. For a small additional one-time cost, you can be the one who decides if a claim should be made. Your attorney's fees, not just the lender's, will be covered, and, if there is a loss, your equity, not just the loan, will be protected.
 
 
Why You Need an Owner’s Policy

You’ve heard it before. The purchase of a home is one of the most important investments you will ever make. Protecting this investment involves more than protecting the physical integrity of your house and land. You also need to safeguard your purchase against any defects in title, unknown liens or other third party claims that did not show up during the title search.

Title insurance is purchased with a one-time premium and covers you for as long as you own the property. You will find that many banks and other lending institutions usually require a Lender’s Policy, and it is always a good idea to have an Owner’s Policy to cover any equity you have in the property. You’ll even save money by buying both policies at the same time.


Why Survey Matters are Not Usually Covered in an Owner’s Policy

It is important to remember that Owner’s Policies generally except from their coverage matters that would be revealed on an accurate survey of the property. This exception can only be removed from your Owner’s policy if you submit a Standard Boundary Survey or an ALTA/ACSM survey. Otherwise, the exception remains in your Owner’s Policy, even if your bank has this exception removed from their Lender’s policy by submitting an Owner / Seller Affidavit or mortgage loan inspection sketch.

Standard Title Insurance Policy Exceptions

While title insurance policies provide a broad scope of protection, it is important to understand what kinds of items are not covered. In addition to the survey matters mentioned above, title insurance does not cover you or your lender against claims held by third parties that are not recorded as part of public record. Some examples include liens that were somehow not recorded, and claims by squatters or tenants.
 
 
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